Sep 17 2009 Martin Coyle
A review of Jersey's anti-money laundering legislation will take place despite a largely positive International Monetary Fund report into the island and its compliance with international standards. Although the IMF said that Jersey had a "robust" AML framework, it said that it was "overly generous" regarding the reliance that businesses could place on third parties.
The IMF noted that Jersey had put in place a comprehensive AML and counter-terrorism financing framework that complied with almost all aspects of the Financial Action Task Force recommendations. It said that Jersey firms were well-supervised and said authorities on the island were active in ensuring international cooperation. IMF officials did, however, find compliance issues concerning FATF recommendations five and nine, which deal with banking secrecy and intermediary reliance respectively.
Andrew Le Brun, director of international and policy at the Jersey Financial Services Commission, said that the report recognised the efforts that had been made in recent years. He noted that the issue of third-party reliance had been one of the more difficult areas when the commission introduced its money laundering handbook in 2008. He pointed out that Jersey, when devising its own standards, had closely followed the Third Money Laundering Directive and, in particular, the UK's implementation of it. The island had interpreted the international standard and had applied it in a way which fully recognised the risks attached to allowing one business to place reliance on another, he said.
In its report, the IMF noted that the current regime in Jersey allowed firms to place reliance on a Jersey-based lawyer to carry out due diligence, subject to the firm's risk assessment of that lawyer and his or her capabilities. The IMF said that because lawyers in Jersey had only been subject to AML legislation since May 2008 there had been insufficient time to build up a compliant regime. Le Brun pointed out that this might become less of an issue in the longer term; the IMF's main concern was clearly the newness of Jersey's legislation. He said the island would take the IMF's view very seriously and would revisit the situation once it had the benefit of two or three years' experience, and had had the chance to observe developments in the UK and other comparable jurisdictions.
The IMF's second point concerned the reliance which the island's institutions were able to place on introducers in jurisdictions with bank secrecy legislation, such as Switzerland, Belgium and Luxembourg. The IMF was concerned that Jersey's legislation did not specifically exclude reliance on these countries; the legislation provided that firms needed to feel confident that if they called for information from a jurisdiction it would be made available, rather than ruling that firms could not place reliance on countries where secrecy rules were in place.
Le Brun said that the IMF was clearly suggesting that the jurisdiction needed to be a little bit more prescriptive in its legislation and should take away some of the discretion currently allowed to firms. He said: "We think we know our industry and we think what we have got is appropriate but it is always helpful to have a fresh pair of eyes looking at the same points." Le Brun said the jurisdiction would review the matter in the light of the IMF's comments, to establish whether further changes were necessary.
Next step
Overall, Le Brun described the IMF points as "valid" and said the next step would be for the regulator to consult the industry on potential legislative changes. The regulator had recently issued a consultation paper designed to tidy up some of the more technical points picked up during the IMF's visit. In the short term the JFSC would issue an action plan setting out how it planned to deal with the IMF points; this would be updated on an annual basis. It would also use its influence on a FATF committee looking at the reliance issue to help provide clarity or a tightening of the recommendation.
Local dignitaries welcomed the report. In a joint statement Senator Terry Le Sueur, the chief minister, and Colin Powell, CBE, the JFSC chairman, said: "This is an excellent outcome and we attach tremendous importance to the IMF's assessment. We are delighted that it has yet again demonstrated Jersey's high degree of compliance with international standards. The FSSA and other reports will provide a strong base from which to continue discussions with our European neighbours about recognising the equivalence of what we have in place in Jersey.
"Jersey remains committed to maintaining and enhancing its adherence to international standards and welcomes the recommendations made within the FSSA. These recommendations will assist Jersey in further strengthening its regulatory, supervisory and AML/CFT arrangements and in developing its capacity to deal with financial sector shocks."
